The bottom line has come to mean the essential and vital truth of a matter for a reason — and that reason is that money is the foundation of the business world. In this regard, it makes little difference whether you’re a cutthroat profiteer working to become rich or a committed altruist trying to make the world a better place: either way, you need money to stay in operation.
In all the excitement of getting a small business up and running, it’s surprisingly easy to overlook this fact (at least come to view it as a lesser priority), but it’s essential that you don’t. Not only do you need to pay close attention to the money you’re making, but you also need a comprehensive accounting system in place to ensure it’s consistently tracked.
That’s easier said than done, naturally. Some parts of accounting are easy, but others are notorious for causing major issues if left unchecked. Let’s take a look at 6 of these problem areas, and consider how to address them:
Maintaining cash flow
Cash flow is essentially a simple calculation reached by comparing your income to your outgoings during a particular period (typically a month, or even a week). Continue making this calculation as the months roll by, and you’ll start to form an idea of how you’re doing.
It’s distinct from profitability because a profitable deal can still cause problems if the profit is delayed. Positive cash flow means you’re bringing in more than you’re losing, which is the best scenario. If you’re struggling to achieve that state, you may need to push slow clients to pay faster, rearrange your payment scheduling, or simply charge more for your services.
Large businesses can often cope with losing employees because they have the savings and connections to replace them fairly swiftly. Not so with small businesses. They need their teams to stick around, but that’s hard to achieve when people aren’t getting paid on time.
Payroll mustn’t be handled manually, because it’s all too easy to get distracted and forget to pay workers before they start losing their patience. Use software automation to handle it for you, or bring in a payroll consultant to figure it out on your behalf (it can be done manually in QuickBooks) — the execution doesn’t really matter provided everyone gets paid on time.
Using split accounts
When you want to buy lunch while you’re working, do you just use your personal account, or do you use the business account? Do you even have a business account? It’s surprisingly common for new business owners to have little idea about why it’s so essential to have a distinct bank account for business use.
Naming Tips: How to Come Up with a Catchy Business Name
As early as possible, you need to set up a dedicated business account that’s accurately registered across the board and commit to using it for anything related to the business. This will save you money, protect you from financial loss in the event of business failure, and simply make your outgoings easier to understand.
As noted in discussing cash flow, it’s possible (and frustrating) for clients to miss payment deadlines and only transfer what they owe after they’ve been chased on several occasions. This is obviously less likely to happen if you choose your clients very carefully, but it’s also easier to get paid on time when you issue clear and straightforward invoices.
Your invoices should be consistent, branded, unambiguous, and sent exactly on time — they should also be extremely easy to pay. There are tools that can turn your transaction details into high-quality invoices, so you should use one: Quickbooks is solid here, but I suggest trying Wave on the basis that its fundamental tier is 100% free, so it won’t cost you a cent.
Tracking all receipts
How many payments do you make in the average week? Factor in the grocery store trips, the gas station stops, and the online impulse buys, and the number of purchases can easily stack up — and then you need to add in the retail activity of every member of your team. You might think it doesn’t matter if you miss a handful of receipts for small buys, but those buys add up.
For tax purposes, and for general awareness of what’s happening with your accounts, you need to be tracking all purchases relating to the business (no matter how seemingly trivial) and passing that data to your cash flow calculations.
Setting clear budgets
Without having various completed company projects behind you, it’s really tough to know how to approach budgeting. If you don’t allocate enough money for a project, you won’t get the results you’re looking for — and if you allocate too much, it won’t be economical, and other aspects of your business will suffer from deprivation.
There really isn’t a shortcut for coming up with a solid budget (though templates can help). All you can do is pay close attention to the financial status of your business, research what comparable businesses have spent on particular tasks, think carefully about the ROI you expect to reach, and do your best. And if you get it wrong, learn from your mistakes so you’ll do better next time.
Naming Tips: How to Come Up with a Catchy Business Name
Small business accounting is irritating at the best of times. After all, you want to be thinking about all the exciting creative possibilities, not making sure the numbers add up. But without balanced accounts, your company won’t survive to fulfill its potential — so take your finances seriously.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.